Business Interruption Underwriting Managing the impact

Transcription

1 Business Interruption Underwriting Managing the impact Willis Latin American Energy Conference Cartagena, Colombia, 22 October 2014

2 Agenda The Basics Underlying Complexities Observation Downstream Largest losses Shortfalls of Business Interruption underwriting Managing Business Interruption Volatility 2

3 The Basics Business Interruption (BI) Compensation for the financial effect of an interruption Linked to material damage covered under the policy Subject to the terms and conditions of the policy Deductibles Indemnity period Subject to Caps, Sublimits and limits Additional coverages CBI: Contingent Business Interruption Service Interruption Restricted access (with or without official orders) following property damage Port Blockage 3

4 Underlying Complexities Mining Volatile commodities drive profit Key bottlenecks have impact on the operation Sensitive to Port blockage, Service interruption Power Spot market power purchase to cover contracts Critical components can delay return to normal operations Specific Contingent BI exposures with unforeseen impact Mid- Downstream Energy Tied to the volatility of Refining margins Increasing plant integration creating bigger BI loss Service interruption 4

5 Underlying Complexities Risk inherent Every Industry is different Every operation is different Exposure is based on observations and assumptions on business performance Volatility in commodities drives exposure Energy related industries tend to have significant exposures from additional coverages 5

6 Underlying Complexities - Common in Latin America Operations on remote locations Limited local production of key equipment Scare Skilled work force Various jurisdictions and regulations with direct impact to BI Refineries in Latin America 6

7 Contentious Too many variables in calculating the quantum of loss 7

8 Observation Downstream Largest losses Year of Loss Cause Country PD / Actual US$ BI / Actual US$ Total / Actual US$ Category 2005 Fire/lightning/explosion Canada 187'000'000 1'280'000'000 1'467'000'000 Oil sands 2011 Fire/lightning/explosion Canada 385'000' '000'000 1'007'000'000 Oil sands 2013 Fire no explosion Argentina 300'000' '000'000 1'000'000'000 Refinery 2008 Fire + explosion/vce USA 600'000' '000' '000'000 Refinery 2004 Fire/lightning/explosion Algeria 695'000' '000'000 LNG 2008 Windstorm USA 680'000' '000'000 Refinery 2011 Earthquake Japan 590'000' '000'000 Refinery 1988 Fire + explosion/vce USA 288'000' '000' '000'000 Refinery 2001 Fire/lightning/explosion USA 233'500' '000' '500'000 Refinery 2006 Fire + explosion/vce USA 110'000' '000' '000'000 Petrochemical 2005 Windstorm USA 374'866' '309' '176'374 Refinery 2013 Fire no explosion USA 110'000' '000' '000'000 Petrochemical 1987 Fire + explosion/vce USA 287'218' '452' '670'945 Petrochemical 2000 Fire + explosion/vce Kuwait 506'000' '000'000 Refinery 2008 Windstorm USA 120'000' '000' '000'000 Chemical Source: WELD, Willis Energy Loss Database (incident database, not insurance). Updated: Sep

9 Shortfalls of Business Interruption underwriting Engineering reports have limited focus on Business Continuity Rates and curves have limitations in calculating increased exposures from volatile commodities Nat Cat models can not properly model BI exposure Coverages like port blockage and some CBI exposures are difficult to asses 9

10 Surprises We don't like them! 10

11 Managing Business Interruption Volatility Bet on client with sound and realistic Business Continuity Management Full understanding on how Nat Cat perils can trigger BI coverage Sound inventory of key spare parts Detailed understanding of interdependencies within plants Credit or debit for specific characteristics Control accumulation from suppliers, utilities, ports Tier 1, reduce exposure to unnamed suppliers Limit the exposure with deductibles, sublimits and share 11

12 Understand how your client generates revenue Detect any critical elements Information is key! Make sure they understand that you understand Is your intention properly expressed in the policy, slip? 12 12

13 Thank You! 13

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